Obama's moment to overhaul the TVA

The utility, a New Deal icon, is a major polluter.

February 25, 2009

By William Chandler

Washington

How can President Obama, a man charged with saving the banks, the environment, and reversing the biggest spike in unemployment since 1974 – all at the same time – avoid being labeled the greatest socialist in American history?

TVA is the nation's largest utility. Federally owned, it is an icon of the New Deal, and yet it has the worst environmental record of any utility in the nation. Three days before Christmas, a sludge dam at its Kingston coal-fired steam plant failed, inundating houses and hundreds of acres with 5 billion gallons of watery ash, and filling the Emory River with coal waste and heavy metals.

Congress created the TVA at the nadir of the Great Depression and the start of the New Deal, 75 years ago. President Franklin Roosevelt's idea – which sounds very familiar today – was to stimulate the economy, create jobs, and conserve natural resources by investing in new energy systems.

TVA didn't live up to its supposed goals. Both during and after the Great Depression, manufacturing jobs were created faster just outside the TVA area than within it.

Non-TVA counties in northern Georgia and Alabama and western North Carolina in 1933 were as poor as or poorer than TVA counties, but by 1953 they were generally better off. Even rural electrification and the use of household appliances grew faster in the non-TVA south.

To be sure, TVA created jobs for some 13,000 workers, but for at least four decades, Depression-era investments in TVA dams, waterways, and recreation areas have failed to pay for themselves by any economic measure.

In the 1950s and '60s, under plans enacted by former chairman David Lilienthal, populist Democrat the agency made its mission to provide electric power, at any environmental or social cost. Within two decades, TVA's coal-fired plants made it the nation's largest violator of the Clean Air Act. A coalition of environmentalists sued the agency in the late 1970s and won, forcing it finally to install air pollution controls. But even today, TVA ranks among the nation's largest sources of greenhouse-gas emissions.

Could Obama turn TVA into an exemplar of the smart power grid he wants to create?

It's not as simple as it may seem. The agency is owned by the US government, and its management appointed by a nine-member board of directors (currently all Republicans), who are in turn appointed by the president for five-year terms.

All power generation costs, however, including investments in new power plants, must be met by the customers of the TVA. The TVA board sets its own power rates. Capital is made cheaper by the implicit financial backing of the US government.

It will be at least 2011 before President Obama could assert control over the board by replacing members as their terms expire.

Because customers pay for power, and because TVA policy is to provide power at the lowest possible cost, there is no room to subsidize the creation of a smart grid, new energy systems, greater environmental protection, or even general economic development. Environmental protection comes only when the government requires it, and the fact that the government owns the utility does little to serve the public interest.

If TVA is merely a power company, why shouldn't it be privatized?

Yet historically, proposals to sell TVA elicit howls of outrage. Would the current Republican board consider sale of the agency as an option, or would they defend the status quo?

Obama will have to grapple with the history and the politics of this question as he ponders how to make TVA a force for more-efficient energy use, better jobs, and a low-carbon future. At the least, Obama could put TVA management on notice of his expectations. He could direct his Department of Energy and Environmental Protection Agency to define steps TVA should take to reform the 75 year-old agency. He could require – and reward – investment in energy efficiency and disincentivize the wasteful use of power. He could require TVA to create the most advanced carbon mitigation measures of any US utility – and then of any utility anywhere in the world. He could inform managers that if by 2011 this plan is not well advanced, they will be replaced, and the agency put up for sale.

None of this is likely to come easily. No lobbying group with any credibility is calling for reforms at the TVA. But as Obama could well note, there's nothing conservative about propping up a filthy, state-owned utility company, and nothing socialist about expecting it to provide clean energy to meet customers' demands.